Download Table 1: India`s agriculture trade in post reforms and post WTO period

Impact of Trade Liberalization and related Reforms on
India’s Agricultural Sector, Rural Food Security,
Income and Poverty
Ramesh Chand
Professor – Agricultural Economics
Institute of Economic Growth
Delhi, India
Email: [email protected]
Indian agriculture has undergone significant changes and transformation during the last
fifty years. The underlying factors for these changes were different in different periods.
During 1950s and 1960s institutional reforms like land reforms and development of irrigation
and other infrastructure played a major role in output growth. Technological breakthrough
has been the prime mover during 1970s and spread of technological changes to wider areas
and crops has been the main factor during 1980s. The decades of 1960s and 1970s also
witnessed high growth in public investments in agriculture which improved infrastructural
base for growth of agricultural output in the country in the following decade.
The decade of 1980s show decline in public investments in agriculture and sharp rise in
level of input subsidies. The declining trend in public investments for infrastructure
development for agriculture continued during 1990s alongwith rising trend in the input
subsidies. The same period (since 1991) has been marked by reforms involving, among other
things, change in exchange rate and liberalization of external trade. Measures have been
taken to promote integration of domestic economy with global economy. These changes in
turn have affected domestic prices of several commodities and, terms of trade for agriculture
have undergone changes during the decade of 1990s. Alongwith liberalization of trade,
private sector has been allowed and encouraged to participate in the import and export of
major agricultural products. Two, domestic prices of cereals, through government
intervention in minimum support prices and open market operations, were given substantial
hikes to reduce dis-protection to agriculture because of domestic prices being lower than the
international prices of several commodities. This way, prices have become the major driving
force for growth and development of agriculture sector during 1990s. The process of reforms,
particularly trade reforms, further intensified since 1995 following implementation of WTO
agreement on agriculture.
There is lot of concern about the impact of trade and other reforms followed since 1991
on growth rate of agricultural output, food security, nutrition, regional equity, price stability,
1
farm income, welfare of consumers and producers as affected by changes in prices brought
about by reforms. This paper looks at some of these aspects. This has been seen by using
both national level as well as household data.
1.
Agricultural Trade Before and After Reforms
India’s total agricultural exports were at $ 3.35 billion during 1990-91 which
corresponds to 4.13 percent of GDP of agriculture sector. Devaluation of exchange rate by
22.5 percent in one go in 1991 followed by subsequent depreciation in the exchange rate,
coupled with lifting of some restrictions on export, helped the country to double its exports in
next six years (Table 1). Imports also moved on a rising trend in the same period but increase
in export was much higher than the increase in agricultural imports. Consequently, the net
exports increased from $ 2.67 billion during 1990-91 to $ 4.94 billion by 1996-97.
Table 1: India's agriculture trade in post reforms and post WTO period
Exports
Imports
Net exports
Trade as % of GDP Agriculture@
Year
$ million
$ million
$ million
Export
Import
Total
1990-91
3352
672
2679
4.13
0.83
4.95
1991-92
2599
3203
604
4.59
0.87
5.46
1992-93
2011
2950
938
4.73
1.50
6.23
1993-94
3271
4013
742
5.67
1.05
6.72
1994-95
2320
4211
1891
5.18
2.33
7.51
1995-96
4337
6098
1761
7.34
2.12
9.46
1996-97
4943
6806
1863
7.23
1.98
9.21
1997-98
4321
6685
2364
7.02
2.48
9.51
1998-99
2601
6064
3462
6.28
3.58
9.86
1999-00
2134
5842
3708
6.01
3.81
9.82
2000-01
3627
6273
2646
6.59
2.78
9.36
2001-02
2775
6183
3408
6.28
3.43
9.71
Source: Agricultural Statistics at a Glance, Ministry of Agriculture, GOI, various issues.
@ Based on Rupee value at current prices.
The increase in export and import raised the proportion of trade in agricultural GDP
from less than 5 percent in the beginning of reforms to close to nine and a half percent by
1995-96. After 1996-97, value of export started shrinking as international prices started
falling (Chand 2003). Due to falling international prices imports into the country became
more attractive and were facilitated due to liberalization of imports followed due to WTO
commitments. Thus, after 1996-97 imports kept increasing further and were doubled in the
next three years. This way the net earning from agriculture trade in the post WTO period
dropped to a very low level. The post WTO period showed increase in ratio of imports to
GDP whereas ratio of exports to GDP for agriculture sector followed small decline. This
2
shows that post WTO period has been adverse to export but favourable for imports. This
pattern shows sharp contrast with the first five years of reforms period when share of exports
in GDP experienced sizable increase.
Marine products are the most important items of agricultural exports from India and
oilmeal/cake remained the second most important item in most of the years (Table 2). Export
of marine products got a big boost with economic reforms in the initial years. During the past
WTO period marine products export did not show much increase. India has registered its
presence in a very big way in rice export in some years however these exports show very
large year to year fluctuations. Export of oil meal increased from $ 377 million in 1991-92 to
$ 985 in 1996-97. Since then export have fallen to less than half. In the case of commodities
like cotton, wheat, and sugar, India occasionally export large quantity but there is no
consistent trend in these exports. Exports of traditional items from India like spices, tea and
coffee and groundnut could not keep pace with the past after 1997-98. Export of horticultural
products maintained upward trend during post WTO period but total export of these products
is low.
Trends in export show that India has not been able to maintain steady flow of export
of commodities like non-basmati rice, wheat, cotton, sugar. In the post WTO period export
of oil, groundnut, spices, tea, coffee has been affected adversely. In the case of high value
horticultural and livestock products, exports, in general, maintained rising trend even during
the post WTO period of depressed international prices. Export of guargum meal, castor oil
show the possibility of exploiting inches in export. Trend in export of caster oil is a pointer
to the important role of technology that enabled India to raise castor yield in some states
which equipped it with advantage in export.
Changes in import of major agricultural commodities during the reform period can
be seen from Table 3. Import of food and related items increased three times in a short span
of four years in the beginning of economic reforms. Imports of food and related items
increased at a very sharp rate during post WTO period also, which raised the imports from $
1.1 billion in 1995-96 to $2.7 billion during 1998-99. In the last two years some check has
been put on these imports.
Table 2: Export of selected agricultural commodities during reforms and post WTO period, $ million
1991/ 1992/ 1993/ 1994/ 1995/ 1996/ 1997/ 1998/ 1999/ 2000/ 2001/
Commodity
92
93
94
95
96
97
98
99
00
01
02
Basmati rice
204
276
338
276
255
352
454
446
411
472
387
3
Non basmati rice
Wheat
Cotton raw inc. waste
Pulses
Oil meal
Sugar and mollases
Marine products
Groundnut
Spices
Tea
Coffee
Tobacco Mfd. &
Cashew
Castor oil
Guargum meal
Poultry & dairy prod.
Meat & prep.
Floriculture product
Fresh fruits
Fresh vegetables
Processed fruit/veg.
* Less than 0.5 million $.
105
60
72
108
52
3.5 0.07 13.5
125
63
208
45
**
18
23
29
377
534
740
573
64
122
57
20
590
602
813 1127
3
3
54
32
152
136
182
195
495
337
337
311
136
130
174
335
154
164
147
81
274
257
333
369
57
40
92
141
38
36
45
45
**
**
**
**
94
89
110
128
6
5
6
10
** **
**
60
143
108
132
79
36
41
49
79
** Data not available.
1113
110
61
39
703
152
1012
69
238
351
450
134
370
222
68
18
188
18
69
89
104
543
197
444
37
985
304
1129
92
339
292
402
213
362
177
100
35
200
18
69
94
92
454
0.11
221
97
925
69
1207
153
380
505
457
288
377
155
147
32
218
23
75
84
105
1046
*
49
53
461
6
1038
33
388
538
411
181
387
160
173
23
187
25
63
65
109
311
*
18
97
378
9
1184
86
408
412
332
233
568
247
188
28
189
27
71
77
129
170
91
48
118
448
111
1396
69
355
392
260
190
449
209
130
47
322
26
85
100
172
279
280
9
77
474
375
1218
53
312
360
229
170
374
131
84
73
251
27
85
121
152
Table 3: Import of selected agricultural commodities during reforms and post WTO period, $ million
1991/ 1992/ 1993/ 1994/ 1995/ 1996/ 1997/ 1998/ 1999/ 2000/ 2001/
Item
92
93
94
95
96
97
98
99
00
01
02
Food and related items
321
555
426 1263 1103 1372 1678 2757 2655 1687 2332
Fruit and nuts
41
62
69
100
99
129
155
159
137
175
160
Pulses
104
109
181
189
205
251
322
168
82
109
664
Sugar
0
0
0
727
65
1
127
264
257
7
7
Edible oil
101
54
53
199
677
826
745 1803 1859 1310 1362
Cotton raw & waste
71
6
161
156
9
22
91
290
260
432
Import of edible oil accounts for major increase in food import. Till 1994-95 import
of edible oil did not exceed $200 million. During 1998-99 and 1999-2000 edible oil import
have risen to more than $1.8 billion. This has raised Indian’s dependence on import for
edible oil close to 40 per cent (Chand and Pal 2003) and is causing adverse impact on
domestic oilseed growers (Chand et.al 2003). Import of cotton (raw and waste) has also
witnessed quantum jump after 1998-99. Despite having large surplus of sugar for export,
India witnessed import shock whenever tariffs on sugar imports were low.
The trend in India’s import and export during reforms period show that decline in
India’s agricultural exports after 1997 is consistent with the trend in global trade in
agricultural products largely attributable to decline in the international prices. However,
4
India’s farm imports rose sharply during post WTO period despite decline in global
agricultural trade. Thus India’s agricultural imports during post WTO period did not follow
the trend in the global trade. Second, in the post WTO period trade liberalization has led to
sharp rise in import of edible oil and cotton. Horticulture sub sector has seen favourable
impact on export during the decade of reforms.
2.
Impact on Terms of Trade and Prices
Reforms initiated in 1991 affected agricultural prices mainly in two ways. One, by
giving steep hikes to domestic support prices particularly of rice and wheat to reduce gap
between domestic and international prices. Two, through liberalisation of trade. The overall
impact of reforms on agricultural, food and manufacturing prices for the country as a whole
can be seen from the index numbers and their growth rates presented in Annexure I for one
decade before and one decade during the reforms.
Terms of trade is commonly used to see whether direction of price change has
remained favourable or adverse to a particular sector. There are several ways to compute
TOT between two series or sectors. One of the simplest but quite revealing and appealing
index of TOT for agriculture is given by the ratio of prices received by agriculture relative to
prices paid for by the sector. This ratio, as computed and reported by Ministry of Agriculture,
for the sector as a whole is presented in Table 4 for the last two decades. This ratio with base
triennium ending 1990-91 reveals that during 1980s prices received by agriculture increased
at a much faster rate than the prices paid by agriculture. In other words, TOT moved in
favour of agriculture during 1981-82 to 1990-91. This way by 1990-91 a favourable pricing
environment was created for agriculture sector.
With the beginning of economic reforms there was further improvement in the already
favourable situation of TOT for agriculture. Prices received by agriculture relative to prices
paid by it reached a peak level by 1994-95 (Fig 1) and fluctuated at that level for about four
years. Last three years i.e. 1999-00 to 2001-02 have witnessed some decline in TOT for
agriculture but still TOT are more favourable to agriculture compared to the period before
reforms.
Table 4: Index of prices received and paid by agriculture and terms of trade,
baseTE 1990-91 =100
Index of
Index of
Year
prices received
prices paid
Terms of trade
1981-82
54.9
61.9
88.7
1982-83
60.3
66.0
91.4
5
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
64.2
68.0
70.4
76.7
86.0
90.3
97.5
112.3
130.8
138.7
151.4
171.1
182.9
190.6
205.9
220.8
219.8
225.0
229.4
70.1
72.4
75.2
80.2
88.3
91.8
98.1
110.2
123.8
133.5
146.1
160.5
173.7
184.8
194.9
209.9
214.0
218.9
224.3
91.6
93.9
93.6
95.6
97.4
98.4
99.4
101.9
105.7
103.9
103.6
106.6
105.3
103.1
105.6
105.2
102.7
102.8
102.3
Growth rates:
1981-82 to 1990-91
7.74
6.23
1.42
1990-91 to 1999-00
7.83
7.77
0.06
1990-91 to 1995-96
9.99
9.40
0.54
1995-96 to 2001-02
3.92
4.38
-0.44
Source: Agricultural Statistics at a Glance, August 2003, Ministry of Agriculture, GOI, New Delhi.
6
19
81
1 9 82
82
1 9 83
83
1 9 84
84
1 9 85
85
1 9 86
86
1 9 87
87
1 9 88
88
1 9 89
89
1 9 90
90
1 9 91
91
1 9 92
92
1 9 93
93
1 9 94
94
1 9 95
95
1 9 96
96
1 9 97
97
1 9 98
98
1 9 99
99
2 0 00
00
2 0 01
01
-0
2
Terms of trade
Fig. 1: Terms of trade for agriculture, base TE 1990-91=100
110
107
104
101
98
95
92
89
86
83
80
Year
7
Rate of increase in prices was also examined for different foodstuffs. During the
decade preceding reforms prices of cereals show lowest growth among selected groups of
food commodities (Table 5). The rate of increase was 5.76 percent which was smaller than
rate of inflation in overall economy and cereal prices in real terms declined by about one
percent per year before reforms. During the decade after economic reforms were started,
trend rate of increase in cereal prices turned out to be more than 9 percent. In real terms
cereal prices during the decade of reforms increased annually by 1.5 percent whereas prices
of non cereal foods put in one group followed decline in real terms as is implied by negative
growth rate in food articles. This implies that during the reform period prices have caused
adverse effect on consumption of cereals and favourable effect on non-cereal foods.
Table 5: Growth rate in prices of various food commodity groups before and during reforms
Edible Fruit &
Milk & its Meat, Egg & All food All
Price/Period
Cereal Pulses oil
vegetable products
fish
articles commodities
Nominal prices
1981-82 to 1990-91
1990-91 to 2000-01
5.76
9.45
10.35
9.77
8.83
2.68
7.45
8.65
8.57
7.31
7.27
11.10
9.14
7.77
6.75
7.87
1990-91 to 1996-97
1996-97 to 2001-02
11.33
5.72
13.58
4.15
4.39
-0.76
10.96
3.55
8.06
7.89
13.79
5.87
8.01
5.45
10.55
5.01
-0.93
1.47
3.37
1.77
1.95
-4.81
0.65
0.72
1.70
-0.52
0.49
3.00
2.24
-0.09
Real prices
1981-82 to 1990-91
1990-91 to 2000-01
1990-91 to 1996-97
0.71
2.74
-5.57
0.37
-2.25
2.93
-2.30
1996-97 to 2001-02
0.67 -0.83
-5.50
-1.39
2.74
0.81
0.42
Computed from: Index Number of Wholesale Prices in India, Government of India, various Issues.
Growth rate in nominal prices of all the commodities was much lower in post WTO
period compared to the five years period of domestic reforms before WTO. Growth rate in
nominal cereal prices during post WTO period was half of the growth rate recorded during
reforms before WTO. Similarly growth rate in prices of pulses, fruits and vegetables and
meat products during post WTO period was one third of the growth rate in reform period
before WTO. Nominal prices of edible oil followed decline after 1996-97. In fact, it is felt
that had government not taken measures to keep a check on cereal imports their prices in post
WTO period would have followed decline due to decline in international prices.
Growth rate in overall price index in the country declined from 10.55 percent per
annum during 1990-91 to 1996-97 to 5.01 percent during 1996-97 to 2001-02. Deflating
agricultural prices by this index shows that cereal prices despite significant slowdown in
8
nominal terms continued to rise at a more or less same rate in real term during pre and post
WTO reform period. However, in the case of edible oils, pulses, and fruits and vegetables the
growth rate in real prices after 1996-97 was negative. In the post WTO period rate of increase
in nominal cereal prices is found to be the same as observed during pre-reform decade but in
real terms cereal prices kept increasing at 0.67 percent per annum. Real prices of food as a
group show rising trend in the post WTO period.
An econometric exercise was carried out to see definite impact of liberalization on
domestic prices. This was done by estimating effect of international prices, real exchange rate
and trade liberalization during 1990s (measured by dummy variable) and import duty on
domestic price index of agricultural commodities measured in $. The results are presented in
Table 6.
Table 6: Effect of International Prices, Import Duty, Real Exchange rate and Trade Liberalisation
on Domestic Wholesale Prices of Food Articles, 1980-81 to 1999-00.
International
Real Exchange Import
Regression runs
Constant
Price
Rate
Duty
Dummy R-Square
I
Coefficient
3.646
0.310
-0.068
-0.014
-0.225
0.682
t- statistics/F stat
2.091
1.664
-0.300
-0.256
-2.652
-9.121
Significance
0.052
0.114
0.768
0.801
0.017
0.000
II
Coefficient
3.519
0.306
-0.048
-0.210
0.681
t- statistics/Fstat
2.162
1.693
-0.232
-3.426
12.804
Significance
0.044
0.108
0.819
0.003
0.000
III
Coefficient
-0.255
0.540
0.553
0.473
t- statistics/Fstat
-0.170
2.579
3.903
8.522
Significance
0.867
0.018
0.001
0.002
IV
Coefficient
3.162
0.337
-0.198
0.680
t- statistics/Fstat
6.068
2.853
-6.114
20.183
Significance
0.000
0.010
0.000
0.000
Source: Chand et.al. 2003b
All the four variables explained 68 percent variation in index of food prices
(expressed in $) in India. In the first round, containing all the explanatory variables, effect of
international price was significant at 11 percent and dummy variable was significant at less
than 2 percent. The impact of import duty showed negative but highly non significant impact.
Dropping of some variables show that international prices, real exchange rate and trade
liberalization as seen through dummy caused significant effect on domestic prices. The
analysis showed that domestic prices of agricultural commodities are affected by
international prices and level of real exchange rate. Import duty in most cases has not been
9
effective in protecting domestic prices from international prices. The reason for this seems to
be that non tariff measures have been used more effectively by India to regulate trade.
Removal of control on imports and exports during 1990s has brought down the level of
agricultural prices in general.
3.
Impact on Production
Agricultural production over time is affected by interacting influences of
technological, infrastructural, and policy factors. After mid 1960s, Indian government started
intervening in agriculture sector to create favourable environment for exploitation of
technological potential. This was done by creating enabling infrastructure through public
investments and by policy changes affecting agricultural marketing, production, processing
and trade. During the decade of 1980s public investments in agriculture started falling.
Despite this decline, output of agriculture sector showed higher growth rate compared to the
previous three decades (Table 7).
This could be made possible by spread of modern
technology to wider areas, increase in crop intensity, crop diversification, increased use of
technology enhancing inputs driven by market forces and policy support. The decade also
witnessed some improvement in terms of trade in favour of agriculture.
During the decade of 1990s declining trend in public sector investment that set in
during 1979-80 continued for most part of the decade. However, terms of trade were made
highly favourable to agriculture sector during 1990s by hiking level of cereal prices through
government support, trade liberalization, exchange rate devaluation and disprotection to
industry. Several researchers felt that as economic reforms focused mainly on price factor
and ignored infrastructure and institutional changes the overall impact on growth of
agricultural sector has not been favourable. This argument is supported by citing deceleration
in output of agriculture sector after reforms were started in the year 1991 (Chadha 2002;
Mujumdar 2002, Bhalla 2002, Kumar 2002). There is a particular concern about decline in
public sector investments in agriculture, as shown in Annexure I, which are found to have
strong effect on agricultural productivity and growth by couple of studies1.
Our estimates show that decadal growth rates in total, agricultural and non
agricultural GDP followed acceleration during the reform decade. The increase was modest
for agricultural sector but quite large for non agricultural sector. Within agriculture, output of
crop sector showed better growth during reform whereas output of livestock showed
1
See Chand (2001); Gulati and Bathla (2001); Shangen et.al. 1999.
10
deterioration. Further, within crop sector, growth rate of output of horticulture sector during
reforms period was more than double the growth rate during the decade before reforms. It is
worth noting that during the reforms output of horticultural sector increased annually by
about 6 percent which is double the growth rate in total crop output. Excluding fruit and
vegetables, output of crop sector showed a decline in growth rate to the level of 2.26 percent
during 1990s as compared to 2.48 percent during 1980s. Growth rate in output of non
horticultural crops dropped to mere 0.34 percent after 1995-96. Likewise, GDP of fishery
sector also witnessed setback in growth rate during the reforms.
Table 7: Growth rates in GDP of Economy and agriculture sub sectors at 1993-94 prices
Period
GDP
GDP Non GDP
GDP
Value of Output
Total
agriculture Agriculture fishing Crop sector Livestock Fruit/veg
1950-51 to 1959-60
3.68
4.91
2.93
5.79
3.06
1.42
0.56
1960-61 to 1969-70
3.29
5.00
1.27
4.00
1.70
0.41
5.82
1970-71 to 1979-80
3.45
4.72
1.94
2.90
1.79
3.92
2.88
1980/81 to 1989-90
5.38
6.78
3.13
5.82
2.47
4.99
2.36
1990/91 to 1999/00
6.19
7.40
3.28
5.46
2.99
3.82
5.97
1990/91 to 1995/96
1996/97 to 2001/02
5.56
5.53
6.63
6.85
3.16
1.75
7.49
2.72
2.65
1.28
4.25
3.47
4.93
4.55
1990/91 to 1995/96
1990/91 to 1996/97
1990/91 to 1997/98
1990/91 to 1998/99
1990/91 to 1999/00
1990/91 to 2000/01
1990/91 to 2001/02
5.56
6.01
6.09
6.16
6.19
6.12
6.06
6.63
7.04
7.26
7.33
7.40
7.38
7.29
3.16
3.69
3.35
3.43
3.28
3.01
2.95
7.49
7.41
6.90
5.90
5.46
5.07
4.96
2.65
3.22
2.92
3.10
2.99
2.66
2.58
4.25
4.12
3.95
3.89
3.82
3.76
3.73
4.93
5.92
5.91
6.14
5.97
5.88
5.78
When reform period is divided in two sub periods viz. 1990-91 to 1995-96 and 199697 to 2001-02, which represent sub periods of reforms before and after WTO, the growth
rates present different picture. It is relevant to divide post reform period in these two sub
periods because reforms of first and second sub periods provided different type of economic
environment. In the first sub period following 1991, terms of trade became highly favourable
to agriculture sector.
This happened because of three factors.
First, government gave
substantial raise to minimum support prices of main cereals (rice and wheat) to bring in some
parity between domestic and international prices. Two, agricultural exports were liberalised.
Three international price situation was favourable.
After 1995, under its commitments to WTO, India had to remove quantity restrictions
(QRs) and liberalise imports. As after 1997 international prices started falling, that started
putting downward pressure on domestic prices of most of agricultural commodities. Thus the
11
second sub period during reforms did not remain favourable to agriculture unlike the first
phase during 1991 to 1996. This caused adverse impact on growth rate of agricultural output.
As can be seen from Table 7, GDP agriculture rose at the rate of 3.16 percent during 1990-91
to 1995-96 (i.e. reforms before WTO) and at the rate of 1.75 percent during1996-97 to 200102 (i.e. post WTO reform period). Growth rate of crop sector decelerated from 2.65 to 1.28
percent and for livestock sector from 4.25 percent to 3.47 percent. The decline has been very
sharp in the case of fishery. In a sharp contrast to output of agriculture sector there was a
small acceleration in growth rate of non-agriculture sector.
Further insight into affect of time on growth rate during reforms period is obtained by
computing growth rates between fixed base 1990-91 and by extending terminal years 199596 onwards. This shows that growth rate of non agriculture GDP kept accelerating till 199900 after which there is a slight deceleration. Growth rate of agriculture sector reached peak by
1996-97 and slowed down after that. There is a continuous deceleration in the growth rate of
livestock output after 1995-96. Growth rate in output of horticultural crops kept increasing
till 1998-99 after which slowdown set in.
Growth rates for important commodities and commodity groups presented in Table 8
indicates that except fruits and vegetables all other agricultural commodities have seen
deceleration in growth during reforms period. The deceleration got further accentuated during
post WTO period. Annual rate of growth between 1980s and 1990s declined from 2.85
percent to 2.20 percent for cereals and from 1.49 to 0.66 percent for pulses. In the case of
oilseeds the growth rate declined to less than half. Growth rates in milk, egg and fish
production also witnessed deceleration. It is solely due to the horticultural crops that total
output of crop sector show higher growth rate during the reforms period. During post WTO
period output of pulses declined annually by 2.56 percent. The rate of decline was close to 4
percent for cotton and more than 6 percent for oilseeds.
Horticultural crops experienced impressive performance during the reforms period
and also during the post WTO period eventhough there was small slowdown in growth rate
after 1995-96.
Here it is pertinent to discuss what would have been the growth rate in agricultural
and cereal output without the increase in cereal prices or improvement in terms of trade in
favour of agriculture. During reforms period there has been excessive emphasis on prices of
output and on input subsidies. This led to a very large increase in food subsidies and in input
subsidies. To meet the growing fiscal burden of food subsidy and input subsidy resources
12
have been diverted from development and capital heads to revenue heads. This has caused
adverse impact on public investments in rural infrastructure. Second, government price
support for cereal production, which was earlier confined to small agriculturally advanced
region, got further concentrated there. Thus in the states and regions, having vast unexploited
potential to raise cereal production, institutional and policy support remained weak and
undependable. Third, obsession with prices alone during reforms caused setback to efforts for
promoting improved technology, modern inputs, and irrigation. If due importance and
priority was accorded to development of public infrastructure and spread of improved
technology and institutional support for hitherto neglected regions than even with lower
prices production response could be expected to be better.
Table 8: Production performance of selected commodities/ groups before and after reforms and trade
liberalization as revealed by growth rates
Before reform After reform
Before WTO After WTO
1980-81
1990-91 Change
1990-91
1996-97 Change
Commodity/
during
Groups
To
To
to
To
during
WTO
1989-90
1999-2000 reforms
1995-96
2001-02
Foodgrain
2.73
2.09
1.51
1.17
Cereals
2.97
2.30
1.81
1.71
Pulses
1.49
0.66
-0.66
-2.56
Wheat
3.58
3.59 None
3.27
1.12
+
Paddy
3.62
2.05
1.53
2.25
Oilseeds
5.45
2.25
3.91
-3.94
Sugarcane
2.71
2.75 Very small
2.92
1.74
Cotton
2.79
2.31
5.53
-6.06
+
Onion
1.94
5.22
+
2.96
3.76
Fruit & veg. *
2.36
5.97
+
4.93
4.55
Milk
5.41
4.37
4.34
4.14
Egg
8.47
4.31
5.36
4.10
Fish
4.39
4.16
5.16
2.25
*Output is measured in physical quantity except fruit and vegetables which is in Rs. at constant prices of
year 1993-94.
3.1 Impact of Prices on Production
It is interesting to look at the growth rates in output of various commodities in the
light of changes in their prices. Three types of patterns are observed in the growth rates of
prices and output (Table 9). First pattern shows deceleration in output growth despite prices
becoming highly favourable. This is the case of cereals. Second pattern represents impressive
increase in output with small improvement in real prices – fruits and vegetable come in this
category. The third pattern is usual kind where decline in real prices brings down growth
13
rate, as has been experienced in the case of livestock products to some extent and for oilseeds
to a large extent.
Table 9: Growth rate in prices and output of selected agricultural commodities
Fruits & Milk & its All food All
Cereal Pulses Edible oil veg.
products articles Commodities
Nominal prices
1981-82 to 1990-91
5.76 10.35
8.83
7.45
8.57
9.14
6.75
1990-91 to 2000-02
8.69 8.98
2.38
8.32
7.29
7.44
7.48
Real prices
1981-82 to 1990-91
-0.93 3.37
1.95
0.65
1.70
2.24
1990-91 to 2000-02
1.12 1.40
-4.74
0.78
-0.17
-0.04
Growth rate in output
1981-82 to 1990-91
1990-91 to 2000-02
2.85
2.11
1.49
-0.25
5.45
0.76
2.36
5.78
5.41
4.29
Out of these three patterns cereals represent somewhat unusual case; why their growth
rate decelerated despite prices becoming highly favourable? The answer to this puzzle partly
lies in regional dimension with respect to growth potential and government intervention in
cereal prices. As it is well known, in India, government has been intervening in rice and
wheat markets to a large extent, through administered prices. This is done by procuring paddy
and wheat at MSP and by issuing the stock at some prices for open market supply and for
public distribution. Thus, observed cereal prices do not indicate true impact of market forces
as they are mainly governed by government intervention. This intervention on production
side is such that its coverage is limited to a few states or pockets within the states which were
first to adopt green revolution technology and came up with surplus production of rice and
wheat in early 1970s. Remaining states do not get any direct benefit of guaranteed and
remunerative prices provided by the government for wheat and rice through procurement.
This can be seen from the information provided in Table 10 on percent of market arrivals of
wheat and paddy procured by government agencies in various states.
However, the traditionally surplus states have already reached high level of
productivity and have approached plateau in yield of wheat and rice. Thus, increase in price
is not able to bring much increase in production in these states. On the other hand, there are
states/regions like Bihar, Uttar Pradesh other than its Western part, Orissa, Assam and
Madhya Pradesh which have very low level of rice and wheat yield and have large potential
for raising cereal production. But these states are not getting benefit of remunerative and
guaranteed prices because government procurement operations are concentrated in the other
14
states. Thus, observed increase in cereal prices is not reaching low productivity states which
have potential for increase in yield and production. This is also evident from the fact that in
these technological lagging states there are frequent incidences of farm harvest price
remaining below MSP because government does not procure the produce in these states
(Chand 2003). Second, attempts to increase production by raising prices alone does not
produce results if efforts on technological fronts, input use, irrigation are ignored. This is
what is happening in the case of cereals in India. These factors also explain to a large extent
why agricultural growth has sharply decelerated during later years after reforms despite TOT
remaining favourable.
Table 10: Productivity of rice and wheat and government procurement in selected states
Market arrival procured
Yield/ hectare Kg
by govt. %
1996-97
1997-98 1998-99 1999-00 2000-01 TE 1999-00
Rice
Andhra Pradesh
2601
2431
2752
2650
2936
68
Assam
1336
1339
1345
1456
1495
-Bihar
1437
1490
1454
1671
1475
-Haryana
2968
2797
2239
2385
2559
59
Madhya Pradesh
863
731
848
981
574
27
Orissa
993
1380
1212
1127
1041
36
Punjab
3397
3465
3153
3347
3506
76
U.P.
2121
2146
1942
2185
1976
20
West Bengal
2178
2243
2256
2227
2287
8
India
1879
1900
1921
1994
1913
40
Wheat
Bihar
2183
1961
2091
2163
2134
-Haryana
3880
3660
3916
4165
4109
76
Madhya Pradesh
1821
1591
1807
1796
1446
-Punjab
4234
3853
4330
4696
4563
88
Uttar Pradesh
2700
2525
2551
2804
2720
18
India
2679
2485
2590
2778
2743
50
4.
Impact on Household Income
There are no surveys available at national or regional level in India to find out
changes in income of farm households due to changes in policy during the decade of reforms.
However, National Sample Surveys on consumer expenditure conducted by National Sample
Survey Organization, Government of India, provide authentic data on total household
expenditure, which has been often used as a proxy for income. In the absence of any other
source for estimating changes in income of farm households this paper also use total
15
expenditure as a proxy for income. This includes income coming from all sources that is
farm and non-farm.
This proxy has been used to estimate growth in income (total
expenditure) during 1993-94 to 1999-2000. These two years correspond to nation wide main
sample survey during the reforms period. Nominal income was deflated by Consumer Price
Index for Agricultural Labour for rural households.
Changes in income of farm and labour households in rural India can be seen from the
information furnished in Table 11.
Table 11: Growth rate in real income and level of income at current prices for different sections of rural
population during 1987-88 to 1999-00
Compound growth rate in income at
Household category
1987-88 prices %/year
Per capita nominal income Rs./year
1987-88 to 1993-94 1993-94 to 1999-00
1987-88
1993-94 1999-2000
Landless labour:
-0.26
2.59
1532
2661
4831
Cultivators:
All size classes
-0.40
2.17
2180
3755
6652
Sub-marginal
-0.19
2.71
1887
3292
6019
Marginal
-0.37
2.73
1974
3407
6234
Small
-0.34
2.20
2097
3625
6430
Medium
0.10
2.57
2273
4036
7319
Large
-0.63
2.46
2772
4710
8487
All rural
-0.24
2.01
Note: Basic information drawn from NSSO household data.
Source: Chand et.al. 2003b.
2122
3692
6478
During 1993-94 to 1999-00 real per capita income of rural households increased 2.01
percent. Per capita income as measured by total expenditure in real prices at cultivator and
labour households increased at the rate of 2.17 and 2.59 percent annually. Table 11 also
contains information on growth rate in income of different farm size categories over time.
This shows that per capita real income from all sources increased at a slightly higher rate at
sub marginal and marginal holdings compared to the other farm size holdings. Going further
down the economic ladder, per capita income of landless labour has grown at a higher rate
compared to farm households. The reason for this could be the growth rate in real wage rates
for agricultural labour.
It is interesting to compare the growth rate in total household income with growth
rate in income derived from agricultural sector but comparable information is not available
from the two sources. However, some crude comparison can be attempted. GDP agriculture
during the decade of reforms show annual trend growth rate of 3.28 percent and rural
population during the same period increased at the rate of 1.67 percent.
Deducting
population growth rate from growth rate of GDP agriculture shows that agriculture income
16
per rural person increased at the rate of 1.6 percent. This is lower than the per capita total
household income which increased at the rate of 2.01 percent during the reforms years. These
results show that income derived from non farm sources by rural households increased at a
faster rate than agricultural income during the reforms period.
5.
Poverty and Food Security
Change in poverty and household food security were seen during the period 1983 to
1999-00. The reason for including year 1983 in the analysis was to compare the change
process before reforms as observed from the data for year 1983 and 1987-88 with the change
process during reforms as revealed by comparing 1987-88 situation with 1993-94 and 199900. Level of energy intake and protein intake and per cent of population consuming less than
suggested norm of calorie and protein2 were used as indicators of food security.
Average per capita calorie intake at cultivator households in India during the year
1983 was 2289 kcal, which increased to 2423 during 1987-88. With the beginning of
economic reforms calorie intake declined to 2277 and remained at this level during the year
1999-2000 (Table 12). Protein intake increased between 1983 and 1987-88 and declined
thereafter in 1993-94 and 1999-00. Among different size classes calorie intake showed
decline in the beginning of reforms and increase thereafter except in the case of large farm
size group which recorded decline. In all the survey years per capita calorie intake increased
with the increase in size of farm, which represents economic class.
Calorie intake at labour households dropped sharply in the beginning of reforms and
recovered subsequently. Calorie intake at labour households during 1999-00 is slightly higher
as compared to the year 1983 but lower as compared to 1987-88.
There was a sharp reduction in percent of population consuming less than minimum
level of calorie suggested for a healthy person between 1983 and 1987-88. The process got
reversed in the beginning of economic reforms. With further progress in reforms,
undernourished population (i.e. population deficit in calorie) among farm households
increased but there was a sharp decline in the case of labour households.
Incidence of malnourishment (protein deficiency) showed a sharp decline before
reforms. With the beginning of economic reforms farm population deficit in protein showed
2
Minimum (threshold) food-energy requirement is taken as 1800 kcal/person/day for rural households and 1575
kcal for the urban households. These requirements represent 75% of the recommended calorie which is 2400
kcal / person / day for rural and 2100 kcal/person/day for urban (see V.M. Dandekar, 1996 Chapter 6 Poverty
Debate). An intake below this threshold is not sufficient to maintain health and body mass, and nor to support
light physical activity. The threshold level of food-protein intake is taken 48 gram per person per day for the
average Indian. Below this level of protein the persons of the household are treated as malnourished.
17
a slight increase. Intensification of reforms with trade liberalization however were
accompanied by sharp increase in malnourishment of farm population. The situation is
somewhat different in the case of labour households.
Their protein deficit population
increased substantially in the beginning of reforms and dropped subsequently. According to
the estimate for the year 1999-2000 more than 26 percent farm population and more than 45
percent of rural labour are suffering from energy and protein deficiency.
It would be seen from the results presented in Table 12 that reduction in poverty
before reforms was associated with sharp reduction in under nourishment and
malnourishment. However, after 1987-88, reduction in poverty did not reduce
undernourishment. There was no significant reduction in poverty between 1987-88 and
1993-94 but during 1993-94 and 1999-2000 percent of population under poverty came down
from 30.1 percent to 21 percent at farm households and from 54.6 percent to 39.6 percent at
labour households. In a sharp contrast to reduction in poverty, incidence of undernourishment
show small increase and malnourishment show large increase at farm households. However,
at labour households reduction in poverty between 1993-94 and 1999-00 reduced incidence
of undernourishment to a considerable extent eventhough undernourished population was
higher during 1999-00 compared to 1987-88.
The reason for this differential impact on labour and farm households is related to
dietary pattern presented in Table 13. There was a very small decline in cereal intake and
moderate to large increase in consumption of pulses, fruits and vegetables, milk, meat etc at
labour households. Thus, the impact of small decline in cereals was more than offset by
increased consumption of the other foods. Moreover, there was no decline in foodgrain
(cereal plus pulses) consumption at labour households. This helped in reducing
undernourishment and malnourishment among rural agricultural labour. In contrast to this,
there was a sharp drop in per capita consumption of cereals and total foodgrains at farm
households, even after 1993-94, which could not be compensated by increased consumption
of horticultural and livestock products. This caused increase in nutritional deficiency at farm
households.
Table 12: Nutrition and poverty among agricultural labour and farm households of various size groups
Aspect/Year
Agricultural labour
Farm households
Population under poverty %
1983
1987-88
1993-94
1999-00
64.6
55.3
54.6
39.7
18
42.6
31.6
30.1
21.0
Undernourished population %
1983
1987-88
1993-94
1999-00
48.6
41.2
53.6
45.5
29.0
21.9
24.0
26.2
44.1
38.0
50.0
48.7
27.7
21.1
22.3
28.2
1908
2010
1819
1948
2289
2423
2277
2278
54.0
56.9
50.7
51.9
64.7
69.2
65.3
62.7
11074
4909
9013
10627
47582
52945
40418
40611
Malnourished population
1983
1987-88
1993-94
1999-00
Calorie intake/person/day
1983
1987-88
1993-94
1999-00
Protein intake/person/day: gram
1983
1987-88
1993-94
1999-00
Sample households
1983
1987-88
1993-94
1999-00
Table 13: Changes in consumption pattern of rural households as revealed by quantity (kg) consumed per
person per year, 1983 to 1999-2000
Household
Fruits &
category Year
Cereals
Pulses
Edible oil
veg.
Milk
Meat
Sugar
Landless labour
1983
166.1
8.2
2.7
39.4
16.8
3.3
8.1
1987-88
162.6
8.7
3.5
47.0
26.2
3.6
9.5
1993-94
149.3
7.4
3.8
61.4
23.9
4.4
7.4
1999-00
148.4
8.5
5.1
70.3
25.5
4.7
8.0
Farm households
1983
187.5
11.7
3.6
50.2
41.4
3.7
11.2
1987-88
186.2
12.4
4.4
60.3
56.6
4.7
11.8
1993-94
171.3
10.2
4.8
74.4
65.8
4.4
10.6
1999-00
161.2
10.9
6.0
79.3
68.1
5.4
11.0
This patterns in poverty, nutrition and cereal intake show that poverty and cereal
intake plays important role in nutritional security of rural households in India. These changes
also show that high growth rate in output of fruits and vegetables and livestock products in
India during 1990s did not help Indian masses to improve nutrition. As cereals constitute the
19
major share in the food and the decade of 1990s witnessed their reduced consumption the net
result has been increase in proportion of population deficit in calorie. Similarly, pulses are the
main source of protein in India, stagnation in their production is the cause of protein
deficiency.
There is a strong feeling among some researchers that decline in cereal consumption
in India is the result of structural shifts in demand or dietary diversification away from
cereals caused by changes in life style, tastes and preferences and it should not be seen as
causing adverse effect on nutrition. However, the decline in cereal consumption during
1990s was much higher than what was accounted for by dietary diversification (Chand et.al.
2003b). The rate of decline in cereal consumption was small during 1970s and 1980s - the
period during which real prices of cereals were also falling. During 1990s rate of decline in
cereal consumption accelerated by about 70 percent. The reason for this acceleration in the
rate of decline in cereal consumption was sharp increase in real prices of cereals in the same
period.
Summing up
Agriculture sector witnessed sharp improvement in terms of trade during initial years
of reforms. In the post WTO period though TOT remained favourable compared to the period
before reforms but there is decline in them. Second, among different crop groups rice and
wheat have enjoyed most favourable price environment because of strong government
support in raising their support prices. However, growth rate in cereal prices has not helped in
growth of their output because price support actually benefited agriculturally developed
region which have exhausted their production potential. And this support was missing in the
regions which have low yield and high potential for growth.
Growth rate in GDP of agriculture sector showed almost no change during the pre
reform decade and post reform period. Division of agriculture sector into crop and livestock
sub-sectors shows a clear acceleration in growth rate of output of crop sector and a clear
deceleration in the growth rate of output of livestock sector during the reform period. There is
also deceleration in output of fishing sector during reforms. Acceleration in output of crop
sector is solely due to very sharp rise in growth rate of fruits and vegetables and almost all
other crops show moderate to high decline in growth rate during reforms period.
When reform period is divided into pre WTO reforms and post WTO reforms the
growth rates present very depressing scenario – sharp deceleration and negative growth rates
20
in some cases. Similarly, exports have been adversely affected and imports have seen fast
growth after WTO.
There is modest increase in per capita income of farm and labour households during
reforms, contributed more by non farm incomes than farm incomes. There is also significant
reduction in poverty. However, household food security and nutrition have worsened during
reforms, the reason for which seems to be high growth in prices of cereals caused due to
government policy to give substantial hikes to cereal prices during reforms.
21
Annexure I
Trend in public investments and input subsidies in Indian agriculture, at 1993-94 prices, 1980-81 to 199900
Input
Investment as
Subsidies as
Public investments
subsidies@
Percent of
Percent of
Year
Rs. billion
Rs. Billion
GDP agriculture
GDP agriculture
1960-61
22.7
NA
1.76
NA
1970-71
29.9
NA
1.79
NA
1979-80
68.4
NA
4.96
NA
1980-81
69.9
21.6
2.38
1.02
1981-82
66.3
28.2
3.63
2.20
1982-83
66.0
28.5
3.81
2.19
1983-84
66.0
35.4
3.38
2.42
1984-85
62.4
60.5
3.35
4.11
1985-86
56.2
68.6
3.31
4.53
1986-87
52.7
50.6
3.16
3.30
1987-88
55.7
87.0
3.33
5.51
1988-89
52.6
116.5
2.81
6.41
1989-90
44.1
131.1
2.39
7.04
1990-91
43.2
159.3
2.15
8.06
1991-92
39.0
146.2
1.91
7.18
1992-93
40.6
150.4
1.95
7.26
1993-94
45.4
157.6
2.04
7.10
1994-95
49.6
207.9
2.17
9.03
1995-96
48.5
234.2
2.22
10.06
1996-97
44.6
233.7
1.90
8.88
1997-98
39.5
239.1
1.71
9.01
1998-99
38.8
251.3
1.56
8.45
1999-00
38.7
257.7
1.49
8.49
Source:
1. National Accounts Statistics, Government of India, various issues
@ Adopted from Gulati and Narayan 2003 pp186-7.
22
References:
Bhalla G.S. (2002). Globalisation and Agricultural Liberalisation in India, A Study Sponsored by Ministry of
Agriculture, Government of India, CSRD, Jawaharlal Nehru University, New Delhi.
Chadha G. K. (2002). Indian Agriculture in the New Millennium: Human Response to Technological Change,
Presidential Address to 62nd Annual Conference of Indian Society of Agricultural Economics, Indian
agricultural research institute, New Delhi, Dec. 19-21.
Chand, Ramesh (2001). Emerging Trends and Issues in Public and Private Investments in Indian Agriculture: A
Statewise Analysis, Indian Journal of Agricultural Economics, April – June, Vol.56, No. 2: 161-184.
Chand, Ramesh (2002): Trade Liberalisation, WTO and Indian Agriculture, Mittal Publications, New Delhi.
Chand Ramesh and Suresh Pal (2003). Technological and Policy Options to Deal with Imbalances in Indian
Agriculture, Current Science, Special Issue, February, 2003.
Ramesh Chand 2003). Government Intervention in Foodgrain Markets in the New Context, Policy Paper 19,
National Centre for Agricultural Economics and Policy Research, New Delhi.
Chand Ramesh, Dayanatha Jha and Surbhi Mittal (2003a), India’s Oilseed Sector and WTO, in Mangla Rai et.al
ed. Stress Management in Oilseeds for Attaining Self Reliance in Vegetable Oils, Thematic Papers, Indian
Society of Oilseeds Research, Hyderabad, 357-370, 2003.
Chand Ramesh, P. Kumar and Sapna Sinha (2003b). Impact of Agricultural Trade and Related Reforms on
Domestic Food Security in India, Report of the study done for FAO Rome, Institute of Economic Growth,
Delhi, November.
Dandekar, V.M. (1996). Population, Poverty and Employment, in The Indian Economy -Vol. II. Sage
Publications, New Delhi
Gulati, Ashok and Bathla Seema (2001). Capital Formation in Indian Agriculture, Economic and Political
Weekly, Vol. 36, No. 20, May 19-25.
Kumar P. (2002). Agricultural Performance and Productivity, in Acharya S.S. and Chaudhri D.P. ed. Indian
Agricultural Policy at the Crossroads, Rawat Publications, Jaipur, India.
Mujumdar N. A. (2002). Rural Development: New Perceptions, Economic and Political Weekly, Vol.37 No. 39,
September 28.
Shenngen Fan Peter Hazell and T .Haque (1999) “ Impact of Public Investments in Agricultural Research and
Infrastructure on Growth and Poverty Reduction in Rural India, Discussion Paper IFPRI,Washington D.C.
23